According to sources close to Microsoft, the company hopes the product - Windows .Net Web Server - will cash in on corporate users' increasing interest in appliance servers (lower-end, turn-key systems dedicated to performing specific tasks), and stop some of the momentum which Linux competitors have built in the market.
"This is an arrow aimed at the heart of Linux," said Chris LeTocq, a research analyst and co-founder of California-based Guernsey Research.
The idea of server appliances is catching on. The market research firm IDC issued a report in May estimating that worldwide revenues will experience a compound annual growth rate of 56% and increase from $3.8bn (£2.62bn) last year to $31.4bn (£21.7bn) in 2005.
As an embedded operating system, Linux has been gaining ground over the past two years. Red Hat, for instance, bought Cygnus Solutions - which called itself the first open source company - in November of 1999 for its tools and embedded Linux technology.
"One thing Microsoft has said will be different about the Windows .Net servers is that they will be more modular, making them more conducive to doing things like embedded applications," said Peter O'Kelly, an analyst at the Patricia Seybold Group in Boston.
Al Gillen, a system software analyst at IDC, said this was practical because the technologies currently used to build appliances already contain Web services capabilities.
"Microsoft has some different technologies for server appliances. If it's built on Windows 2000 with the Server Appliance Kit or [Windows] NT 4.0 Embedded, the Web serving is a given," said Gillen.
Microsoft already offers a product similar to the Windows .NET Web Server for original equipment manufacturers (OEMs), centred on an embedded version of Windows NT server that also includes the company's Internet Information System. Several vendors, including Dell and IBM, currently sell such servers bundled with Microsoft's NT Embedded technology.
But in the view of some observers, few users are aware of the embedded versions of NT because Microsoft has bundled it in - some say buried - with other server products.
"A lot of people did not even know embedded NT even existed. By coming out with an OEM version that competes directly for the business being addressed by Linux and Apache, it could shine a bright light on what Microsoft has to offer," O'Kelly said.
A Microsoft spokesperson declined to comment on the product except to say that the company had yet to decide how it would package its upcoming line of .Net Enterprise Servers, currently still in the beta phase of development.